EU demands tough economic reforms but gives France, Spain extra time

29th May 2013, 0 comments

The European Commission laid down its economic targets Wednesday for EU nations desperately seeking growth and jobs in the fallout from the debt crisis but gave France and Spain extra time in return for deeper reforms.

The debt crisis has seen Brussels gain additional powers to ensure EU member states toe the line to avoid future trouble -- just as well, when 20 of the 27 were under surveillance for breaching the bloc's public deficit and debt limits, respectively at three percent and 60 percent of gross domestic product (GDP).

Topping the problem list, France, the EU's second-largest economy struggling in recession, will have to step up the pace of reforms, including of its costly pension system, if it is to get back on track, the Commission said.

Spain, the Netherlands, Poland, Portugal and Slovenia should all be given more time to cut their deficits, the Commission said, while recommending that Malta be placed under scrutiny and sharply criticising Belgium for failing to do enough.

In France, measures should be taken "by the end of this year to reform the pension system and ensure it is in equilibrium by not later than 2020," the Commission said.

As an ageing population adds to the pressure, the French government will have to adjust pension payments, the retirement age -- already on the rise -- and generally reduce the system's overall costs, all at the same time as not increasing the burden on employers.

Given an additional two years to put its fiscal house in order, such pension and labour market reforms must get France from an expected budget deficit of 3.9 percent this year to 3.6 percent in 2014 and 2.8 percent in 2015, it said.

Current estimates put the French deficit -- the shortfall between government revenue and spending -- at 3.9 percent this year and 4.2 percent next, with the economy set to shrink 0.1 percent in 2013.

Prime Minister Jean-Marc Ayrault said the recommendations were in line with current policy "and France will honour its commitments."

Commission head Jose Manuel Barros said France had steadily lost its competitive edge over the past 20 years and needed major structural reforms.

"Our message to France is a very demanding message," Barroso said, adding it was "the right solution" to give the government more time to meet the deficit target.

Faced with the debt crisis, EU governments opted initially for tough austerity measures but soaring unemployment and popular unease have switched the emphasis to growth now, rather than stabilising the public finances.

For the Commission, the EU's executive arm, this means a delicate balancing act between prudence and enforcing budget rules under its "Excessive Deficit Procedure" (EDP), while allowing governments the leeway they need to get their economies moving again.

Spain, which narrowly avoided a full-scale debt bailout last year, was given two extra years to bring its budget deficit into line at 2.8 percent of GDP by 2016.

The Netherlands got an extra year to 2014 and bailed-out Portugal one year to 2015, while Slovenia, beset by worries its stricken banks will also force it into a rescue, got two years to 2015.

Poland was granted two years to 2014.

In return, all these countries must commit to a series of general and specific reforms to improve economic efficiency and stabilise government finances, or face stiff fines.

For Germany, Europe's economic powerhouse and one of the few not on the EDP list, the Commission found little cause for complaint but did suggest Berlin try to bring down its total debt, at 82 percent.

Britain, however, with an expected 2013 deficit of 6.8 percent, has much more to do, and "should continue to prioritise the reduction of its debt and deficit," the Commission said.

For growth, Britain needs to address "structural weaknesses, including a lack of housing supply, skill gaps and the need to renew and upgrade transport and energy infrastructure," it added.

On the other side, the Commission said Italy, along with Latvia, Hungary, Lithuania and Romania, have done enough to bring their budgets into line and so should be dropped from the poorly-marked nations on the EDP list.

Putting a country under the EDP gives Brussels added oversight of its economic policies, allowing it to make specific recommendations as to what it should do and with sanctions available to ensure that they are implemented.

EU leaders are expected to discuss the Commission's recommendations at a summit at the end of June before they are formally approved later by finance ministers of the 27 EU member countries.